ONSC 584
COURT FILE NO.: CV-13-0382-SR
DATE: 2016-01-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
KENNY ALWYN WHENT INC.
Michael Harris for the Plaintiff/Defendant by Counterclaim
Plaintiff/ Defendant by Counterclaim
- and -
J. MAO DENTISTRY PROFESSIONAL CORPORATION
Daniel Matson for the Defendant/Plaintiff by Counterclaim
Defendant/ Plaintiff by Counterclaim
HEARD: October 13 -15 and November 16 and 19, 2015 at Thunder Bay, Ontario
Madam Justice H.M. Pierce
Reasons for Judgment
Introduction
[1] The plaintiff, whom I will also refer to as the landlord, claims damages for breach of contract in connection with a lease it entered into with the tenant, a dental corporation. The damages claimed include unpaid rent when the premises were abandoned, costs to remove improvements installed by the tenant, and unpaid utilities. The landlord concedes that the terms of the lease required it to pay for capping of plumbing and securing air and electrical services after the tenant vacated.
[2] The defendant, whom I will also refer to as the tenant, argues that the landlord was in fundamental breach of the lease, in that the premises were plagued by mice and spiders; the parking lot was strewn with garbage; it was subjected to incorrect back charges; and the landlord unreasonably refused to consent to sublet the premises.
[3] The tenant submits that, in the alternative, if the court is not satisfied that a fundamental breach of the lease occurred, the landlord failed to mitigate its losses by not readying the premises for occupation in a timely way and by omitting to adequately market the property to prospective tenants. The tenant also contends that the landlord has not proven rents due between January and July, 2014, because it presented only an estimate of rent.
[4] The tenant counterclaims for breach of contract based on an overpayment of rent in the sum of $106,613.71. At the commencement of trial, it abandoned its claims for reimbursement of $3,034.66 and for damages for loss of profits.
Fundamental Breach of Contract
[5] In The Law of Contract in Canada, (6th ed.) by G.H.L. Fridman, Q.C. (2011, Thomson Reuters Canada Limited, Toronto, Ontario), a fundamental breach of contract is variously described, at p. 575, as:
a breach in consequence of which the performance of the contract becomes something totally different from that which the contract contemplates, or as a breach which goes to the root of the contract….
[6] Professor Fridman explains that the notion of fundamental breach requires a consideration of the nature and purpose of the contract and the benefits for which the parties to the contract bargained: pp. 576 – 77. It is a question of fact in each case whether the breach amounts to a fundamental breach. As Professor Fridman stated at p. 576:
That question, in turn, depends upon: the terms of the contract; the intended benefit to the innocent party; the purpose of the contract; the material consequences of the breach; and, perhaps, though this has never been discussed in the cases, the extent to which the loss incurred by the innocent party can be remedied adequately by an award of damages.
[7] In Statti Investments Ltd. v. Baresa Kitchen Cabinets Inc., [2014] O.J. No.2410, (Sup. Ct.), para. 31, the court discussed the consequences of a fundamental breach of a commercial lease. If the lease was not fundamentally breached, the tenant is required to fulfil its obligations under the lease. Where a fundamental breach of the lease occurs, the tenant may terminate the lease early without the need to perform the balance of the contract. The court observed that:
Allowing a tenant to terminate early “is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, when the very thing bargained for has not been provided.”
[8] At para 37 of Statti, the court summarized the five factors set out by the Ontario Court of Appeal in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc. (2008 ONCA 92) in determining whether a fundamental breach has occurred:
The ratio of the party’s obligations not performed to the party’s obligations as a whole;
The seriousness of the breach to the innocent party;
The likelihood of repetition of such a breach;
The seriousness of the consequences of the breach, and
The relationship of the part of the obligation performed to the whole obligation.
Background
[9] The parties, through their respective principals, Kenny Whent and Dr. James Mao, entered into a lease for certain commercial premises in November, 2003. The premises were located in a strip mall on a main commercial artery in the City of Thunder Bay. As the principals were aware, Dr. Mao intended to establish his dental practice at that location. His practice included dental surgery as well as more routine procedures. Dr. Mao wanted sufficient space so that his wife, Dr. Lau, could also practice dentistry in the same premises. He also wanted space with some commercial profile. The landlord’s location met these criteria.
[10] The lease is known commercially as a “triple net” lease. The fixed rent was calculated on cost per square foot to produce an annual base rent. In addition, the tenant pays its proportionate share of the costs of operating the building: insurance; common utilities; repairs and maintenance; signage; snow removal and lot maintenance. As well, the tenant pays the actual costs for municipal taxes; administration fees; additional monthly rent and GST. Repairs of a capital nature were the responsibility of the landlord unless they were due to the conduct of the tenant.
[11] The estimated monthly cost for the first year of the tenancy was $6,411.03. First and last month’s rent were paid. During the course of the tenancy, the tenant was provided with annual estimates of rent and was supplied copies of invoices on a monthly basis. At the end of each year, the landlord prepared a reconciliation for the tenant’s review. There were no complaints about the reconciliations by the tenant during the course of the tenancy. The only complaint made was after litigation commenced.
[12] It was a term of the lease that the tenant would return the premises to its original condition before vacating. This became problematic.
[13] Before Dr. Mao could set up his dental practice, it was necessary to arrange plumbing, erect walls, and provide for fixtures. The landlord assumed the cost of plumbing the area in accordance with Dr. Mao’s requirements. The remaining cost to divide and equip the space was borne by the tenant. It was considerable.
[14] The process for raising complaints involved the tenant calling the landlord’s office where the staff would make a note of the complaint, often in a telephone log book, and delegate the work to address it, or speak to Mr. or Ms. Whent about it. The log of telephone messages specific to the tenant’s space was filed as exhibit 74. The staff member within the landlord’s office agreed that not all telephone messages were recorded in the telephone log.
[15] Many of the complaints logged over the term of the lease related to lighting issues. As the cost of any measures taken was passed on to the tenant, there was no financial advantage for the landlord to ignore complaints.
[16] The initial lease was for a period of four years. The parties agreed to an extension of the lease for one further year, as provided in the original lease. At the conclusion of the first extension, Dr. Mao sought a second extension on a month-to-month basis as he was in the process of moving his dental practice to another location. Mr. Whent, representing the landlord, refused Dr. Mao’s request. As Dr. Mao’s new space was not completed, the parties entered into a lease extension in June 2009, for a period of five more years. The lease extension concluded on July 31, 2014.
[17] Dr. Mao anticipated that his new space would be available in October, 2009. As it turned out, completion of the new space was significantly delayed, such that he could not move in until November, 2011. He vacated the landlord’s premises at that time, but continued dutifully to pay rent until June 1, 2013. In the meantime, he made various unsuccessful attempts to sublet the premises or to develop alternate businesses to generate income in the space. Frustrated, he wrote to Mr. Whent on June 1, 2013, returning the keys and advising that he would make no further lease payments. Unfortunately, litigation ensued.
Was There a Fundamental Breach of Contract?
[18] The standard of proof in a civil matter is proof on a balance of probabilities. The evidence that the tenant says constitutes a fundamental breach of contract is assessed on that basis.
Difficulties with Mice
[19] Dr. Mao testified that the premises were beset by mice, from the time he opened his practice at the premises in August, 2004, until he vacated in November, 2011. He stated that he found mice droppings throughout the premises, including in the sterilizing area and operating rooms, on counters, and in the staff kitchen. He said the problem with mice occurred weekly, even multiple times during the week. Efforts to trap the mice in August of 2004 had limited success. A pest control company was also called.
[20] Dr. Mao testified that he was concerned that his surgical instruments would be contaminated, exposing his patients to infection, which would generate pain and suffering and result in negligence claims, professional discipline, and the risk of losing his licence. He also expressed concern that the presence of mice would be detrimental to his professional reputation and would result in a reduction of referrals. He stated that he had to “bag” his surgically sensitive instruments and contain all his supplies. He also took the precaution of inspecting the operating rooms each morning to ensure they were free of mouse droppings and spiders.
[21] Dr. Mao testified that he was concerned that the mice problem would find its way into the public realm if he raised it with the landlord. However, he stated that he discussed the problem with Mr. Whent two or three times. He indicated that Mr. Whent advised him that if Dr. Mao left the doors open during construction, mice would enter. However, Mr. Whent told him that he would address the problem. In cross-examination, Dr. Mao stated that he didn’t convey the severity of the problem to the landlord. He also acknowledged that he didn’t detect any problem with mice in the months in which he worked to set up the premises for his dental practice, before he opened the doors to patients.
[22] Dr. Mao’s office administrator, Lisa Bailot, was called as a witness for the tenant. She began working for Dr. Mao in 2005. She stated that between 5 – 10 mice were trapped each year, with the majority in the fall. She observed mouse droppings at the back door, in the kitchen and utility room until the mouse was caught. The evidence of mice on the premises was consistent between 2005 and 2011. She testified that Dr. Mao asked her to call the landlord about twice a month. She added that the pest control company would not come every time there was a mouse complaint to the landlord.
[23] In cross-examination, Ms. Bailot agreed that she didn’t advise the landlord’s maintenance man that she was setting traps, nor did she report on the number of mice she caught. Sometimes, she would call the pest control company herself. She felt there was a good relationship between landlord and tenant.
[24] The landlord’s witness on the subject of mice was a former employee of Dr. Mao, Sarah Morriseau, who worked at the leased premises in 2007, 2009, and 2011. Issues with Dr. Mao led Ms. Morriseau to terminate her employment.
[25] Ms. Morriseau’s duties included daily cleaning of the operating rooms, office, halls, lunch room and waiting rooms. She stated that she never saw any evidence of a mouse problem and never heard any complaints about mice. She added that she did not look for mouse droppings.
[26] The telephone log filed by the landlord as exhibit 74 shows no telephone calls from the tenant complaining of mice. Nevertheless, I accept that complaints were made to the landlord as there are several invoices from Northwest Pest Control concerning services provided to Dr. Mao’s premises. The earliest invoice dealing with mice is dated in January, 2005. The invoice records that the premises were inspected and bait stations were placed in the lunch room, utility room, coat room and at the rear of an adjacent store. The invoice notes follow up was required in 3 – 4 weeks.
[27] The next invoice from Northwest Pest Control concerning mice was sent in August, 2007. It records that bait stations were placed in Dr. Mao’s premises, with follow-up required in 4 – 6 weeks. The invoice also recommends that door sweeps be placed on receiving doors to keep the mice out. The landlord’s witnesses testified that sweeps were installed as recommended.
[28] Finally, Northwest Pest Control sent an invoice dated September, 2011, dealing with both spiders and mice at Dr. Mao’s premises. The invoice noted that feeding (presumably by mice) was noted on most of the bait stations at the backs of the units in the strip mall. Under the space on the invoice marked “guarantee,” the notation reads “as treated/mice 6 mths.”
[29] I accept the evidence of Ms. Bailot that mice were a problem, especially in the kitchen and utility area at the rear of the premises, and particularly in the fall when mice could be expected to look for a place to winter. The invoices from Northwest Pest Control do not indicate that mouse baiting was done in the operating rooms or areas where dental work was performed. It seems that the program of daily mopping in the operating rooms that Ms. Morriseau described, the morning checks that Dr. Mao described, and the bagging of instruments was adequate to contain the problem. There is no evidence that any patient suffered an infection as a result of the presence of mice.
[30] Obviously, this was an annoyance for Dr. Mao whose concern about infection was justified. However, once he became aware of the problem, in August of 2004, he continued to carry on his dental practice at the premises until November of 2011, more than seven years later, in the process, renewing the lease twice. In these circumstances, I do not find that the problem with mice was as severe as described by Dr. Mao, such that it went to the heart of the contract between the parties. In fact, there is no evidence that it prevented him or Dr. Lau from treating patients at the site. Dr. Mao made no arrangements to treat patients at another location during that time. He did not seek an abatement of rent. Once aware of the problem, the landlord took reasonable steps to control the mouse problem by calling an exterminator and installing door sweeps to keep the mice out.
[31] I therefore cannot conclude that the problems with mice on the premises constituted a fundamental breach of the parties’ lease.
Spiders
[32] Dr. Mao complained that the presence of spiders on the premises, and in particular in rooms where dental surgery was performed, constituted a fundamental breach of the parties’ lease. For the reasons that follow, I do not agree.
[33] As with the problem with mice, Dr. Mao was concerned that the spiders presented a risk of infection for patients. He stated that spiders in the premises were a problem on a weekly basis throughout the time he occupied the premises. He testified about two particular incidents: during the summer of 2005, when performing oral surgery on a patient, Dr. Mao observed a spider dangling from the ceiling of the operating room. He interrupted the surgery to deal with it and then resumed the surgery. In June of 2007, he was removing wisdom teeth when he observed a spider on an instrument tray containing a scalpel. As he was not certain that the scalpel was still sterile, he sent for new surgical instruments.
[34] Dr. Mao’s office manager, Ms. Bailot, testified that spiders were a problem in the fall and in the spring, a couple of times a month. The landlord’s telephone log filed as exhibit 74 records one complaint about spiders made by Dr. Mao’s office in September of 2009.
[35] The landlord also produced invoices from Northwest Pest Control relative to complaints about spiders at the tenant’s premises. The earliest invoice is from August, 2006. It documents that the presence of spiders was noted and the exterior of the unit was treated with pesticide.
[36] The next pest control invoice concerning spiders is dated in August, 2008. It stipulates that the interior and exterior of the premises were treated with pesticide.
[37] Northwest Pest Control attended at the premises again in November, 2008 with respect to a complaint about spiders. The invoice notes that all areas of the office including a crack in a crevice and adjoining vacant buildings were treated with pesticide.
[38] The next invoice produced from Northwest concerning spiders is dated September, 2009. Again, pesticide was applied inside and outside including a crack in a crevice.
[39] The last invoice from Northwest dated September, 2011, deals with both spiders and mice. The invoice confirms that the exterior of the premises was treated with pesticide for the spiders.
[40] It appears from the periodic attendances of Northwest Pest Control that there were occasional complaints made about spiders. In her testimony, Ms. Bailot made little mention of the spider problem. I conclude that from her perspective as office manager, the spiders did not loom large as a problem. She testified that there was an occasional spider.
[41] The evidence suggests that the landlord did not ignore the tenant’s complaints but sought to address them by calling the pest control company. This was reasonable response. Dr. Mao’s first complaint of spiders started in the summer of 2005, about a year after he opened his dental practice in the premises. As with the mouse problem, he took not steps to treat patients in an alternate location. Despite being aware of the problem, he was content to renew the lease in 2008 and again in 2009. He continued to occupy the premises until late in 2011. He did not seek an abatement of rent. In these circumstances, I conclude that the presence of spiders constituted an annoyance to Dr. Mao but it did not go to the heart of the agreement between the parties.
Garbage
[42] Dr. Mao seemed to be particularly exercised by the presence of litter in the parking lot and on the sidewalk outside the premises. He stated that he first noticed the problem in August, 2004, and that it was an on-going issue. He testified that it was demoralizing to see garbage daily in the parking lot of his clinic; he also said that it was demoralizing for his wife to hear his complaints. He added that he received numerous complaints from his patients about the litter.
[43] Ms. Bailot described the garbage as cigarette butts and candy wrappers that blew around. She stated that Dr. Mao had her call the landlord about twice a month to complain about the litter. By contrast, Dr. Mao testified that he instructed Ms. Bailot to call and complain about garbage weekly. Dr. Mao explained that they were lucky if the parking lot was cleaned every 4 – 6 weeks.
[44] Ms. Bailot testified that the litter was especially bad in the spring after accumulating through the winter. She testified that the landlord conducted a spring and fall clean-up, but didn’t come every time she called to complain. She added that Dr. Mao’s staff took turns picking up the litter at the entrance to their premises.
[45] Dr. Mao testified that he spoke to Mr. Whent personally and at the premises about garbage in the parking lot. He stated that he suggested that a barricade be erected to prevent customers from littering in front of his premises. He also suggested that bins be placed outside to contain the garbage and cigarette butts but nothing was done.
[46] In contradiction to Dr. Mao’s evidence, Mr. Whent testified that he had no face-to face meetings with Dr. Mao concerning garbage and that he did not recall Dr. Mao’s suggestions concerning barricades and bins. He added that it would not have been economic to hire a parking lot attendant to check for garbage and charge the tenants for the service.
[47] Mr. Whent’s son, Jake Whent, works for the landlord doing property management. He testified that he would drive by the premises every couple of days and would pick up refuse on the ground. However, he noted that Memorial Avenue on which the premises are located is a busy street with lots of garbage blowing around.
[48] In March 2010, Dr. Mao wrote to Mr. Whent complaining about garbage:
It’s a constant battle with your office to request that the parking lot of Memorial Place, a common area which our dental office shares, be kept free of garbage and filth. There is [sic] always food wrappings, drink containers, spilled liquids, and other trash in the parking lot and on the walkways in front of our office and the other tenants’ premises. My staff, Lisa, [Bailot] has had many telephone correspondence [sic] with your office in this regard and either no action is undertaken or a limited cleanup is provided, stating that the garbage is under parked vehicles.
My patients have complained that the parking lot is appalling with the amount of litter on it. Does your office intend on maintaining this property so that its tenants and merchants can conduct their businesses in a respectable manner? Your immediate and continued attention to this matter is appreciated.
[49] Interestingly, Mr. Whent testified that he did not recall seeing this letter before litigation commenced and his office records do not show the letter as having been faxed to the office.
[50] The landlord’s telephone log at exhibit 74 shows that Lisa called in March, 2010 to request that the parking lot be cleaned. In August, 2010 a complaint about a couch by the back door or shed and garbage was documented; in November 2010, a third request was made to check garbage and clean and sweep the front parking lot.
[51] Exhibit 77 is two photographs of the parking lot taken by Dr. Mao in June, 2009 demonstrating the litter problem. The photos show no litter on the sidewalk in front of his dental clinic and a small cluster of what appears to be water bottles, fast food packaging and straws, largely confined to one area of the parking lot. Most of the parking area evident in the photos is free of litter.
[52] An individual’s tolerance for uncleanliness or disorder may vary. Some may be disturbed by litter while others may not notice it. I accept that Dr. Mao felt that the accumulation of litter outside his dental clinic was unprofessional and reflected negatively on him and his clinic. Nevertheless, the nature and extent of the litter outside Dr. Mao’s dental office is no greater than occurs in other commercial premises near food service eateries and it did not detract from the provision of dental services on the premises, which was at the heart of the parties’ contract. Dr. Mao carried on his practice at that location for seven years, apparently without disruption. He did not seek an abatement of rent.
[53] The evidence shows that the landlord did respond to the litter problem from time to time, but recognized that it was not economic to charge his tenants for keeping the parking lot in pristine condition. It appears that although other tenants complained of ice in the parking lot, Dr. Mao was the only tenant to complain of the litter. Accordingly, this does not constitute a ground for fundamental breach of contract.
Back Charges
[54] The tenant relies on errors in back charges as a ground for ceasing to pay rent. In cross-examination, he said he was suspicious that he was being charged too much. However, he did not quantify the extent of the improper charges even when landlord’s counsel put to him in cross-examination that the errors did not exceed $360 over a period of ten years.
[55] It is true that there were minor errors in charges to the tenant. At trial the tenant’s counsel conceded the $360 discrepancy did not rise to a fundamental breach.
[56] Apart from this concession, I am not persuaded that Dr. Mao believed that this was a ground for terminating lease payments, for several reasons. The reconciliations provided by the landlord had invoices attached to document charges such as utility costs, building and lot maintenance. Dr. Mao testified that his office manager reviewed the reconciliations but he expected they were correct. There is no evidence that he or his staff ever complained about the calculations. Dr. Mao testified that he didn’t calculate the errors before he decided to leave in 2007.
[57] Dr. Mao stated that although he was suspicious that the reconciliations were incorrect, he did not have the expertise to go through them. This explanation is not credible. Dr. Mao had an accountant who prepared his annual tax returns; however, it wasn’t until the summer of 2015, when the litigation was advanced, that Dr. Mao obtained an accountant’s opinion about the charges. He agreed that he did not ask the landlord for a credit. Consequently, I conclude that allegations that improper back charges constituted a fundamental breach of contract arose after the fact, to buttress the tenant’s position. There is no evidence that these very minor errors went to the heart of the lease between the parties. Therefore, I conclude that there was no fundamental breach of contract arising from the back charges.
Consent to Assign or Sublet
[58] The agreement between the parties is styled as an offer to lease; however, it was treated as a lease throughout their commercial relationship. No formal lease was later prepared, although an extension of the lease was subsequently executed.
[59] The lease provided that the tenant had the right to assign the lease or sublet the premises wholly or partially with the written consent of the landlord with such consent not to be unreasonably withheld or delayed. The tenant submits that the landlord unreasonably withheld its consent to sublet. The landlord counters that it was not in breach of contract because the tenant never provided sufficient particulars to enable it to evaluate the proposed subtenant or proposal.
[60] In 1455202 Ontario Inc. v. Welbow Holdings Ltd., 2003 CanLII 10572 (ON SC), [2003] O.J. No. 1785 (Sup. Ct.). para. 9. Mr. Justice Cullity provided a helpful summary of the principles applicable to the issue of a landlord unreasonably withholding consent. With citations omitted, they are as follows:
The burden is on the Tenant to satisfy the court that the refusal to consent was unreasonable. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent.
In determining the reasonableness of a refusal to consent, it is the information available to – and the reasons given by – the landlord at the time of refusal – and not any additional, or different, facts or reasons provided subsequently to the court – that is material. Further, it is not necessary for the landlord to prove that the conclusions which led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable person in the circumstances.
The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the Tenant to assign and that of the landlord to withhold consent. The landlord is not entitled to require amendments to the terms of lease that will provide it with more advantageous terms, but as a general rule, it may reasonably withhold consent if the assignment will diminish the value of its rights under it, or of its reversion. A refusal will, however, be unreasonable if it was designed to achieve a collateral purpose, or benefit to the landlord, that was wholly unconnected with the bargain between the landlord and the Tenant reflected in the terms of the lease.
A probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be a reasonable ground for withholding consent. A refusal to consent will not necessarily be unreasonable simply because the landlord will have the same legal rights in the event of default by the assignee as it had against the assignor.
The financial position of the assignee may be a relevant consideration. This was encompassed by references to the “personality” of an assignee in the older cases.
The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the market place and the economic impact of an assignment on the landlord. Decisions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court.
[61] Dr. Mao testified that in about December, 2011, after his clinic vacated the premises, he had a staff member telephone the landlord about a vendor who proposed to open a restaurant in the space. Apparently the proposal came to nothing.
[62] In April, 2012 Mr. Whent wrote to Dr. Mao reminding him that the landlord was entitled to approve of any assignee of the tenant’s lease. He advised that the only inquiry the landlord had received about the space was from a dentist and that, in Mr. Whent’s opinion, the highest and best use of the space, from both their perspectives, was its continued use by another dentist. Mr. Whent also pointed out that the landlord invested a considerable sum in preparing the building to Dr. Mao’s specifications, and the tenant was obliged to return the space to its original condition at the end of the lease.
[63] Despite this encouragement, Dr. Mao made no contacts with local dentists to ascertain interest in the space and objected to the space being leased by a dentist.
[64] Mr. Whent also referred to queries from Dr. Mao’s staff about a restaurant use in the space; he expressed the opinion that such a use would not comply with the zoning by-law because of the lack of parking. He concluded, “Any use similar to the other tenant`s or your previous would not be objectionable but that would be a decision that we would want input into.”
[65] Dr. Mao testified that he took Mr. Whent at his word that the premises were not properly zoned for restaurant use. He did not obtain professional advice or make further inquiries at City Hall. In the meantime, he stated that he actively tried to sublet the premises.
[66] Dr. Mao stated that an interested party wanted to put a play centre into part of the space. He wrote briefly to Mr. Whent on September 24, 2012 as follows:
Be advised, I have two interested parties in occupying the premises at 1092 Memorial Avenue; one would like to open a “play center” and the other is a Café serving coffee, ice cream, cake and potentially an ethnic grocery section. I can manage the new tenants with a sublease or you can have them as tenants with a new lease. I have options of lease renewal, totalling ten years, which will obviously be terminated if you take on the new tenants. I will only surrender my lease with the stipulation that there not be a dental practice assuming said premises. Your reply is appreciated.
[67] At trial, Dr. Mao testified that the ethnic grocery store would be his own venture. However, that is not evident in his letter. Nor did Dr. Mao identify the parties interested in the other ventures or their respective business plans or financial capacities. Dr. Mao agreed in cross-examination that he did not specifically ask for Mr. Whent`s consent to move these two entities into the space. At trial, he agreed that he had no experience running a restaurant. He added that the play centre proponent moved on.
[68] Mr. Whent replied on September 27, 2012. He indicated his view that the zoning would not accommodate a café and grocery store but that a play centre might be suitable. In order to determine whether the landlord would consent to the sublet, Mr. Whent requested the names of the participants, a copy of the business plan, and confirmation of the financial viability of the parties. He indicated that the success of the sublease would permit the landlord to decide whether it would take the tenant on with a new lease. No such information was forthcoming.
[69] Although Dr. Mao believed that a chiropractor`s space had previously been occupied by a fast food restaurant, still Dr. Mao did not get professional advice on the zoning issue.
[70] On November 19, 2012 Dr. Mao wrote again to Mr. Whent indicating that “a number of prospective tenants have been deterred by the large square footage of the premises and/or limited parking spaces for their proposed business.” He therefore proposed to open a night club at the premises on weekends and requested permission to apply for a zoning change.
[71] Mr. Whent replied on November 20, 2012, acknowledging that the parking limitations inherent in previous proposals might be overcome by a late-night use. The balance of his letter continued,
I would believe that the specific use you are suggesting would not interfere with the use of the parking areas during the business hours and therefore not interfere with their use during the day when the retail shops are open. The challenge you might encounter, if you made an application for a zoning variation, is that the other tenants could voice their opinion and I do not know if it would be favorable to such an operation. I would anticipate their concern would be directed to the late hours some of them are open to accommodate Christmas shopping or the occasional sale that they might have. Even if we approve the concept, they would be entitled to express their opinion at a meeting of the Committee of Adjustments.
It might be well advised to inquire of them as to their position prior to incurring the cost and the time commitment to such an application. If the hours your night club being open are definitively committed to those suggested by you possibly it could be a successful endeavor. If the parking is adequate and the other tenants were in agreement we would not object to such a concept.
[72] Instead of understanding this communication as a promising beginning and pitching his idea to the other tenants, Dr. Mao concluded that the landlord would not consent if the tenants objected. He didnt follow up with the tenants and gave up trying to sublet. In cross-examination, Dr. Mao conceded that Mr. Whent gave his permission to pursue a zoning change although he acknowledged that at the time, he didnt see Mr. Whent`s letter as granting permission to approach the city.
[73] Dr. Mao retained a local realtor to market the premises for three months but no interested parties came forward.
[74] The case law establishes that the burden is on the tenant to satisfy the court that the landlord`s refusal to consent was unreasonable based on the information available to the landlord at the time the refusal was made. Would a reasonable person have withheld consent in the circumstances?
[75] First, there is no obligation on the landlord to provide zoning or business advice to the tenant and Dr. Mao apparently did not seek out such advice at the time.
[76] Zoning aside, there was a complete lack of information about the proposals Dr. Mao advanced for a restaurant, café, play centre, or grocery store to permit the landlord or any other reasonable person to evaluate the plans. The proponents were never identified. No business plans or information about economic capacity was ever provided. In my view, any reasonable person would have withheld consent to assign or sublet in these circumstances.
[77] With respect to the proposal for the night club, the landlord did not refuse consent. Rather, he encouraged Dr. Mao to review his plan with the adjacent tenants. Thus, I cannot conclude that the landlord unreasonably withheld its consent to assign or sublet the lease, putting it in breach of contract.
Tenant’s Damages
[78] Having concluded there was no fundamental breach of contract by the landlord, the tenant’s counterclaim for rent paid for 2012 and 2013 in the amount of $106,613.71 is dismissed.
Landlord’s Claim for Damages
[79] The landlord claims damages from the tenant as follows:
Rent $72,412.50
Cost to remove the tenant’s improvements $24,490.03
Utilities paid on behalf of the tenant $ 2,192.80
Total $99,095.33
[80] However, in reply argument, the landlord conceded that the concrete work completed by Paul Davis Systems in the amount of $12,479.36 was to the landlord’s account, reducing the claim for damages to $86,615.97.
Mitigation
[81] In The Law of Contract in Canada, pp. 730 – 736, Professor Fridman discusses the duty of the innocent plaintiff to mitigate its losses. He explains that an innocent plaintiff claiming damages for breach of contract is duty-bound to take all reasonable steps to reduce his losses (p. 730).
[82] At p. 731, Professor Fridman explains that the onus of proving failure to mitigate is on the defendant. He added,
…While the onus on the defendant of establishing a failure to mitigate, in accordance with the duty, is a heavy one, if it is discharged the defendant is relieved of liability for such damages as can be traced to the plaintiff’s own inactivity, or his conduct which exacerbates rather than mitigates his loss.
[83] At p. 734, Professor Fridman clarifies that the plaintiff is not required to act unreasonably in mitigating his losses. He states, “Conduct that ought to be undertaken by the plaintiff must be foreseeable, and therefore reasonably to be expected from the plaintiff.” Professor Fridman cites Windmill Place v. Apeco of Canada Ltd., (1978), 1978 CanLII 186 (SCC), 82 D.L.R. (3d) 1 (S.C.C.) in support of the proposition that it might be difficult for a landlord to re-rent premises due to poor market conditions, and this would not constitute failure to mitigate on the landlord’s part.
[84] Applying these principles, did the landlord fail to mitigate his losses?
[85] The tenant contends that no damages should be recoverable by the landlord because it failed to mitigate its losses. Specifically, the tenant argues that the landlord:
(a) wasted time and money on renovations that may not have been necessary;
(b) made insufficient efforts to market the premises;
(c) delayed in renovating the space such that it was not fit for a new tenant to re-occupy until April, 2015, past the termination of the parties’ lease;
[86] The tenant also argued that the landlord failed to prove actual rent accruing for January – July, 2014 by tendering estimates.
[87] The tenant submitted that if, however, the court is satisfied that the landlord mitigated its losses, that the claim for utilities is conceded.
[88] When did the landlord’s obligation to mitigate begin? The landlord was on notice as of June 1, 2013, that the tenant would make no further payments on the lease. In my view, the obligation to mitigate began at that time, because that is when the breach of contract occurred. Until that time, so long as the tenant continued to pay rent, there was no breach of contract. The tenant was under no contractual obligation to occupy the space. He was certainly entitled to pay for space that he was not using, as indeed he did with premises he rented previously on South May Street.
Did the Landlord Make Unnecessary Renovations?
[89] Did the landlord waste time and money on performing renovations that may not have been necessary? I conclude that he did not.
[90] In January, 2012, more than a month after Dr. Mao vacated the premises, and before the tenant breached its contract with the landlord, Mr. Whent telephoned Dr. Mao. His purpose was to alert him to an inquiry another dentist made about the space. He called Dr. Mao to propose an agreement to terminate the lease. Dr. Mao had reservations about another dentist taking over the space since he was concerned that his patients would not follow him to his new location. He advised Mr. Whent that he was not interested and continued to pay rent.
[91] Dr. Mao testified that he reconsidered his position after paying rent for the space for a couple more months but by that time, the interested dentist had found other space. Dr. Mao’s recollection as to the timing appears to be incorrect because in September, 2012, he advised Mr. Whent in writing that he would not consent to the vacant space being occupied by another dentist.
[92] Dr. Mao’s position was unfortunate: the premises were set up for use as a dental office. It is probable that the dental community would be the most obvious market for the premises. However, Dr. Mao took no steps to solicit a tenant in the dental community.
[93] Further, as Mr. Whent alluded to in correspondence to Dr. Mao, the terms of the lease required the tenant to restore the premises to their original condition upon vacating. Dr. Mao failed to do so, and the landlord was put to the expense of taking out Dr. Mao’s improvements and claiming those damages in this action. Consequently, it does not lie in the mouth of the tenant to criticize the landlord for wasting time and money in making renovations that might not be necessary. Dr. Mao objected to the space being rented to a dentist and he was unsuccessful in locating another tenant for the space. Indeed, as of the date of trial, more than a year after the termination of the lease, the space remained vacant.
Did the Landlord Make Insufficient Efforts to Market the Premises?
[94] The tenant argues that the landlord made insufficient efforts to market the premises and should be deprived of its damages as a result. I do not agree.
[95] The tenant advised the landlord on June 1, 2013, that he was surrendering the leased premises effective immediately. On June 6, 2013, the landlord advised that he did not agree with Dr. Mao’s position and asked for the name of his lawyer. He also advised that he would be out of the country for two weeks.
[96] The landlord’s property manager, Sharon Whent, testified as to the measures taken to market the premises. The leasehold was listed with a commercial realtor from July 8 to September 30, 2013 with no appreciable results. The listing was not renewed. However, Mr. Whent said he spoke to other realtors about the space. He added that past advertisements in the Chronicle-Journal were not productive. The landlord put signs in the window.
[97] Ms. Whent placed notices on the Kijiji website on November 28, 2013. She explained that the landlord needs to know how the prospective tenant plans to use the space to ensure that it fits with the businesses run by the other tenants and the existing zoning. In some instances, inquiries were made by people simply “kicking the tires,” trying to determine the rental market, perhaps to negotiate a better deal with their current landlord. The following inquiries resulted from the Kijiji posting.
[98] A request was made about the rent on February 9, 2014. Ms. Whent replied on February 10th, querying whether the requestor was familiar with a triple net lease, when the space was needed, and whether the requestor was currently leasing. Apparently, there was no response and Ms. Whent followed up three more times. On February 21st, the requestor asked about the rent and terms. He did not pursue the matter.
[99] An inquiry came from a second individual via Kijiji on March 5, 2014, asking about base rent. The landlord invited the requestor to call its office on March 6, 2014. The inquiry did not produce a rental agreement.
[100] On March 15, 2014, a requestor asked whether the landlord would consider dividing the space in half. A second query from the same individual asked the exact dimensions of the space and the location of the washroom. A third query that day asked again whether the space could be divided and the cost per square foot.
[101] On March 17, 2014, Ms. Whent replied asking whether the individual was familiar with a triple net lease; whether the individual was currently leasing or just starting out; the nature of the operation or business being proposed for the space; and the date when the space would be required. Contact information was also supplied. The matter did not go further.
[102] On March 17, 2014, an inquiry came from an existing business that was replied to on March 25th. No lease resulted from this exchange.
[103] A different business made an inquiry via Kijiji on April 7, 2014, asking about rent and the cost of utilities in case it decided to move. Ms. Whent replied on April 9, 2014, describing the triple net leasing arrangements and asking when the space would be required and whether the business would fit with the zoning. On April 10th, the requestor indicated he was not sure he wanted to move. The inquiry went no further.
[104] On April 12, 2014, a query came from a person interested in establishing a dance studio and asking about the monthly rent. The inquiry was not pursued.
[105] As of July 11, 2014, the Kijiji advertisement was still active.
[106] In my view, the landlord made reasonable efforts to market the premises that were both timely and appropriate. These efforts began before the tenant breached the contract with the landlord.
[107] The space was obviously too large for some prospective tenants. However, it was exposed to the market by virtue of a formal listing agreement and informal conversations with realtors, by social media listings where it apparently caught the notice of several parties, and simply by virtue of advertising the vacancy on a main commercial artery. Apart from criticizing the length of the listing agreement, the tenant has not suggested what other measures might be taken to market the property.
Did the Landlord Delay in Renovating the Space?
[108] Next, the tenant argues that the landlord delayed in renovating the space such that it was not fit for a new tenant to re-occupy until April 2015, well past the termination of the parties’ lease.
[109] The terms of the lease required the tenant to remove improvements at the end of the lease. In order to do so, Dr. Mao testified that he and his father worked in the space before June 2013, removing drywall, lead and steel framing in the operating room. He stated that they also removed cabinetry, plumbing, sink fixtures, and removed garbage and swept, leaving some reusable melamine panels behind that he thought could be reused.
[110] Jake Whent testified that the space couldn’t be occupied by a tenant initially because it was a mess. He described the work that he and another maintenance man did in order to restore the premises to its original condition, as required by the lease. This included cleaning up smashed cupboards and shelving; removing drywall, including lead liners; removing 43 partition walls; exposing electrical wiring preparatory for the electricians; cutting steel studs around hanging wires; purchasing paint and construction materials; cleaning the space and hauling debris to the landfill.
[111] Once the space was deconstructed, Jake Whent and others repaired perimeter drywall, mudded, sanded, primed and painted it. The time sheets filed document the work. They show that work began deconstructing the premises on August 19, 2013, and proceeded on August 20 – 23, 26, 28, and 29th. Work at the premises continued on September 3, 4, 9 – 13, 16, 17, 20 and 30th; October 2, 3, 15 – 18th, 21 – 25th, 28 – 31; November 29; December 9, 2013. Sometimes Jake Whent worked alone; sometimes with another maintenance man who worked for the landlord.
[112] A plumbing contractor invoiced the landlord for work on October 30, 2013, and an electrical contractor invoiced it on December 2, 2013, for services at the premises.
[113] On February 22, 2014, the contractor, Paul Davis Systems, provided the landlord with an estimate for plumbing demolition services in the space. As I indicated, this work was the landlord’s responsibility. I conclude that the work was not performed immediately: in fact, it was not invoiced until April 24, 2015. This is when Jake Whent admitted that the work on the premises was complete.
[114] As I have said, the obligation to mitigate began when the landlord became aware that the tenant breached the contract, June 1, 2013. However, the evidence shows that restoration of the premises did not begin until August 19th, some 2 ½ months later. The tenant argues that the failure to begin work immediately caused a delay in making the premises ready for potential tenants. The problem with this argument is that no potential tenants presented themselves during the remainder of the tenant’s tenancy. Had prospective tenants been turned away because the space was not fit for occupation, I would agree that the measure of damages should be reduced. However, this did not occur. In these circumstances, there was no failure by the landlord to mitigate such that damages should be reduced. The evidence establishes that the tenant failed to remove its improvements at the point that it breached its contract with the landlord, requiring the landlord to take time and expense to remove the tenant’s improvements. That this was not immediately done is academic in the circumstances.
[115] For reasons set out above, I find the efforts to mitigate have been reasonable.
Did the Landlord Fail to Prove Actual Rent?
[116] The tenant submits that if the landlord is found to have mitigated its losses, then it concedes that rent for 2013 is due and owing. This amounts to $36,884.10. Likewise, if mitigation is proven, the tenant concedes that utilities are owed. These total $2,192.80.
[117] The tenant objects to the rent claimed by the landlord for the period between January to July 2014, on the grounds that only an estimate of rent due and owing was proven. The landlord acknowledges that the tenant prepaid last month’s rent when the lease was signed and should be credited accordingly.
[118] The actual rent for 2013 as reconciled at year-end was $70,629.11 (exhibit 42). No objection was taken to this amount. The annual estimate of rent for 2014 was $71,056.81 (exhibit 43). The annual base rent for 2014 was not increased; nor was there any change in the tenant’s proportionate share of building operation costs or administration fees. The utilities for 2014 have been admitted. I therefore find that the rent due to the landlord for 2014 is proven at $35,528.40 based on 7/12th of the annual estimate tendered, giving credit for prepayment of July rent and having regard for seasonal expenses such as snow removal and other adjustments.
Summary of Damages
[119] For reasons given above, the plaintiff has proven its claim against the defendant for breach of contract. The plaintiff shall have judgment for damages as follows:
(a) rent from June, 2013 to July, 2014 with credit for last month’s rent $72,412.50
(b) removal of improvements less the Paul Davis Systems invoice $12,010.67
(c) utilities paid on behalf of the defendant $ 2,192.80
Total $86,615.97
[120] The plaintiff shall also have prejudgment interest in accordance with the Courts of Justice Act. If the parties are unable to agree on costs, they may apply to the trial coordinator within thirty days of the release of these reasons for judgment to schedule a motion for costs, failing which costs will be deemed to be settled.
“Original signed by”
The Hon. Madam Justice H.M. Pierce
Released: January 22, 2016
ONSC 584
COURT FILE NO.: CV-13-0382-SR
DATE: 2016-01-22
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
KENNY ALWYN WHENT INC.
Plaintiff/ Defendant by Counterclaim
- and -
J. MAO DENTISTRY PROFESSIONAL CORPORATION
Defendant/ Plaintiff by Counterclaim
REASONS ON JUDGMENT
Pierce J.
Released: January 22, 2016
/cs